The Leading Web3 Platform: Ethereum vs. Alt-Layer 1 Platforms
What does it take to become the defacto Web3 blockchain platform? Historically Ethereum has held the top spot by a wide margin. When anyone wanted to develop a decentralized application, Ethereum was the default choice.
During the past couple of years, we have seen the rise of the alternative layer one platforms (alt-layer1s) — those blockchain platforms that are considered alternatives to Ethereum. These platforms such as Solana, Polkadot, Avalanche and Terra are all vying for Ethereum's top spot as the default Web3 blockchain platform.
Although Web3 platforms are not a zero-sum game, there is plenty of space for multiple protocols to coexist peacefully (the future is considered multi-chain), the landscape is highly competitive, with billions of dollars available in the form of ecosystem funds to incentivise teams to build upon protocols. The intent is that these funds will help propel the challenger protocols to new heights and perhaps one day enable one of them to steal the top spot from Ethereum.
Then vs. now
I see this competition between different protocols having parallels with what we saw in the 1980s with personal computer operating systems — Windows versus macOS, or in the 2000s with cloud platforms — first AWS, then Azure and Google Compute Cloud; or bitcoin by being the first truly decentralized digital currency (as bitcoin is not widely used as a Web3 development platform I won’t be discussing it further here).
Having the first-mover advantage brings a significant edge to technology platforms, as early adopters are less likely to jump ship when something else comes along. Alternatives need to be incredibly compelling to convince these early adopters that their initial investment isn't simply a sunk cost.
Having the first-mover advantage brings a significant edge to technology platforms, as early adopters are less likely to jump ship when something else comes along. Alternatives need to be incredibly compelling to convince these early adopters that their initial investment isn't simply a sunk cost.
First doesn't always mean best
First mover advantage is not a guarantee of success — Betamax videos and MySpace both had first-mover advantage in their respective fields and we know how that played out for them. In Ethereum's case, it wasn't just that it was the first blockchain platform with a Turing-complete execution layer that ensured its success. It was the innovations that were built on top of the platform that drove its success.
Most of the major Web3 innovations we have seen gain critical mass on Ethereum blockchain. For instance, project or utility tokens, initial coin offerings (ICOs), NFTs, profile pictures (PFPs), decentralized autonomous organisations (DAOs), algorithmic stablecoins, decentralized exchanges, decentralized lending, yield farms all started off on Ethereum.
The downside of all of this success is that it has at times pushed the capacity of the Ethereum network to its limits, resulting in sky-high transaction costs and significant delays in processing cheaper transactions (this has changed since moving from proof of work PoW to proof of stake PoS ). In that respect, it has become a victim of its own success, which is a narrative that alt-layer platforms are all too happy to push when promoting their platform as an alternative.
As it stands most of the alt-layer1 platforms believe they have superior technology to Ethereum that allows them to be faster or lower cost than Ethereum. In some cases, less decentralization is one of the main tradeoffs they are willing to make here.
However, there are two significant obstacles that would need to be overcome to prove an alt-layer1 as a viable alternative to Ethereum. These are demonstrations of
Most of the major Web3 innovations we have seen gain critical mass on Ethereum blockchain. For instance, project or utility tokens, initial coin offerings (ICOs), NFTs, profile pictures (PFPs), decentralized autonomous organisations (DAOs), algorithmic stablecoins, decentralized exchanges, decentralized lending, yield farms all started off on Ethereum.
The downside of all of this success is that it has at times pushed the capacity of the Ethereum network to its limits, resulting in sky-high transaction costs and significant delays in processing cheaper transactions (this has changed since moving from proof of work PoW to proof of stake PoS ). In that respect, it has become a victim of its own success, which is a narrative that alt-layer platforms are all too happy to push when promoting their platform as an alternative.
As it stands most of the alt-layer1 platforms believe they have superior technology to Ethereum that allows them to be faster or lower cost than Ethereum. In some cases, less decentralization is one of the main tradeoffs they are willing to make here.
However, there are two significant obstacles that would need to be overcome to prove an alt-layer1 as a viable alternative to Ethereum. These are demonstrations of
- proven performance at scale and
- innovation.
Can alt-layer1 platforms remain as cheap, performant and resilient as Ethereum under equivalent loads?
This can't be measured by transactions counts alone, it needs to be taking into account the number of unique users, the monetary value tied to the transactions taking place and they're not tied to any specific geography.
Being exposed to this type of scale would require an alt-layer1 to be getting close to Ethereum in terms of usage or adoption, so it's not something that can easily be proven right now, but it is only with this sort of litmus test that one can prove the claims made by these competitor platforms, can hold up.
It's likely that if any of them ever did get to this point, they'd run into unforeseen issues as we've seen with Ethereum. It's also worth considering that with technology if it’s cheap enough, spare capacity tends to get gobbled up. This is why any successful blockchain technology platform will hit issues of scale over time.
As Bill Gates infamously said about the IBM PC "640K [of usable RAM] ought to be enough for anybody." Or just consider how much internet bandwidth has grown over the past two decades — if there's a capacity we will find a usage for it.
The other obstacle to be overcome is the emergence of genuinely new innovations on these alternative platforms. The huge surge of interest in NFTs and DeFi on Ethereum sent transaction costs skyrocketing into the hundreds of dollars. As a result of this, we saw Pancakeswap emerge almost overnight on Binance's Smart Chain blockchain. Dapper Labs also created their own blockchain — Flow to address the issues they'd seen on Ethereum with Cryptokitties.
Given the mainstream popularity of NFTs, we're seeing many of the other alt-layer1 pushing their platforms to get around the scale issues with Ethereum. However, much of this reskinning of technology does not bring with it any really useful innovation. If the Ethereum network was to solve its scaling challenges overnight, we'd likely see most projects return to Ethereum (except those that are being paid generous ecosystem grants to build on a specific platform), as in most cases it's the best tool for the job.
However, not wanting to over speculate on what-if type scenarios, the real question right now is if the approaches to scaling Ethereum with layer 2 technologies can come to fruition with a simple enough onboarding experience that projects are happy to remain there? As that is what the future looks like, with the main Ethereum network a settlement layer servicing these other scaling networks built on top of it.
We're at a pivotal time in the evolution of Web3, where on one side we have Ethereum and its layer 2 networks, and on the other, these alt-layer1's vying for its position. It remains to be seen which will win.
But I do believe, that for any platform to eclipse Ethereum, it needs to prove itself at an equivalent scale and bring new innovations to Web3. Otherwise, the landscape will likely remain as it is, with various protocols coming and going, trying, but failing to establish themselves as the dominant settlement layer of Web3.
Being exposed to this type of scale would require an alt-layer1 to be getting close to Ethereum in terms of usage or adoption, so it's not something that can easily be proven right now, but it is only with this sort of litmus test that one can prove the claims made by these competitor platforms, can hold up.
It's likely that if any of them ever did get to this point, they'd run into unforeseen issues as we've seen with Ethereum. It's also worth considering that with technology if it’s cheap enough, spare capacity tends to get gobbled up. This is why any successful blockchain technology platform will hit issues of scale over time.
As Bill Gates infamously said about the IBM PC "640K [of usable RAM] ought to be enough for anybody." Or just consider how much internet bandwidth has grown over the past two decades — if there's a capacity we will find a usage for it.
The other obstacle to be overcome is the emergence of genuinely new innovations on these alternative platforms. The huge surge of interest in NFTs and DeFi on Ethereum sent transaction costs skyrocketing into the hundreds of dollars. As a result of this, we saw Pancakeswap emerge almost overnight on Binance's Smart Chain blockchain. Dapper Labs also created their own blockchain — Flow to address the issues they'd seen on Ethereum with Cryptokitties.
Given the mainstream popularity of NFTs, we're seeing many of the other alt-layer1 pushing their platforms to get around the scale issues with Ethereum. However, much of this reskinning of technology does not bring with it any really useful innovation. If the Ethereum network was to solve its scaling challenges overnight, we'd likely see most projects return to Ethereum (except those that are being paid generous ecosystem grants to build on a specific platform), as in most cases it's the best tool for the job.
However, not wanting to over speculate on what-if type scenarios, the real question right now is if the approaches to scaling Ethereum with layer 2 technologies can come to fruition with a simple enough onboarding experience that projects are happy to remain there? As that is what the future looks like, with the main Ethereum network a settlement layer servicing these other scaling networks built on top of it.
We're at a pivotal time in the evolution of Web3, where on one side we have Ethereum and its layer 2 networks, and on the other, these alt-layer1's vying for its position. It remains to be seen which will win.
But I do believe, that for any platform to eclipse Ethereum, it needs to prove itself at an equivalent scale and bring new innovations to Web3. Otherwise, the landscape will likely remain as it is, with various protocols coming and going, trying, but failing to establish themselves as the dominant settlement layer of Web3.
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